Reconciling an account involves comparing your records with the records of your financial institution. This process helps ensure that both you and your bank have the same understanding of your transactions and account balance.
Here's a breakdown of the process:
1. Gathering Your Records
- Collect your bank statement. This document lists all transactions that occurred in your account during the statement period.
- Gather your own transaction records. This can include checkbooks, receipts, online banking statements, or any other documentation you use to track your transactions.
2. Comparing Records
- Match transactions. Compare each item on your bank statement with your own records.
- Mark matching transactions. This ensures both you and your bank are in agreement about the transactions that have occurred.
3. Addressing Discrepancies
- Identify any differences. This could involve transactions missing from your records, transactions recorded incorrectly, or discrepancies in amounts.
- Investigate and correct discrepancies. This may involve contacting the bank, reviewing your receipts, or checking your own records for errors.
4. Reconciling Your Account Balance
- Calculate your adjusted balance. This is done by adding any deposits not yet reflected on your bank statement and subtracting any checks or withdrawals not yet reflected.
- Compare your adjusted balance with the bank's ending balance. If the two balances match, your account is reconciled.
Example
Let's say your bank statement shows a balance of $500. However, you have a deposit for $100 that hasn't been processed yet. You also have a check for $50 that you haven't yet recorded. You would add the $100 deposit and subtract the $50 check to get an adjusted balance of $550. If this matches the bank's ending balance, your account is reconciled.
Benefits of Reconciling Your Account
- Ensures accuracy. Helps catch errors and discrepancies in your records.
- Identifies fraudulent activity. May alert you to unauthorized transactions.
- Improves budgeting. Provides a clear picture of your financial situation.
- Protects your finances. Helps avoid overdraft fees and other financial penalties.
